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Air India struggles to pay up dues to oil firms, GMR-led airports

At a time when State-owned Air India is struggling to recover from the losses incurred during the recent 10-day pilots' strike, the ailing national carrier finds itself grappling with demands of the public sector oil marketing companies as well as GMR-led airports in Delhi and Hyderabad to clear their dues.

“The issue relating to the oil companies has been sorted out with the intervention of the government,” airline officials said here on Saturday. “Air India has assured the oil companies that all their arrears will be cleared. The issue with Delhi and Hyderabad airports on account of airport handling charges and aeronautical charges is also being resolved.''

After completing the process of integration of passenger ticketing systems in the post-merger scenario, Air India is also working to complete other formalities over the next month in order to join the global “Star Alliance'' network. Air India, after its merger with Indian Airlines, now has a single code “AI'' for its flights, providing seamless connections on its network by having an integrated passenger booking system for all its flights, be it international or domestic. “Air India should be able to join Star Alliance by July-end. This itself is expected to boost our revenues roughly by nine to 15 per cent,'' airline officials said.

Though there is a demand in many quarters that the Union government should stop putting money in Air India as the cash-strapped carrier was destined to make losses, Civil Aviation Minister Vayalar Ravi has ruled out that possibility, asserting that the national carrier would not be allowed to wither away. “The government has no intention of closing down Air India or privatising it,'' the Minister had stated during the period of pilots' strike.

After a review of Air India's financial health by the brass of the Civil Aviation Ministry this week, it was pointed out that its bill of Rs.450 crore in VVIP expenses and on evacuation operations from 2006 onwards was pending with the government: Rs.344 crore dues from the Prime Minister's Office, the External Affairs Ministry and the Defence Ministry and Rs.106 crore for carrying out evacuation operations.

During 2010-11 alone, the Maharaja dedicated Boeing 747-400 fleet of five aircraft for VVIP operations and the total bill, including the cost of maintenance, came to about Rs.1,200 crore. Sources in the Civil Aviation Ministry indicated that a compensation of Rs.800 crore on account of VVIP operations would be cleared. The national carrier also has Rs.157 crore as dues pending with private carriers Jet Airways and Kingfisher for various services.

A detailed cash flow analysis, relating to the 2010-11 daily average, shows that Air India earns Rs.22 crore from its domestic operations daily and another Rs.14 crore from its operations on the international sector, taking the total to Rs.36 crore.

However, daily average expenses during 2010-11 show that the national carrier has to pay Rs.18 crore daily for its fuel bills in India and Rs.5 crore for fuel bills abroad. Besides, the airline has to shell out Rs.9 crore daily on account of pay and allowances and Rs.12 crore for other expenses. The interest on working capital comes to Rs.6 crore, while interest on aircraft loans comes to Rs.3 crore daily. Foreign station expenses hover around Rs 3 crore and another Rs.5 crore is meant for aircraft principal repayments. The analysis indicates that the current net shortfall per day comes to about Rs. 26 crore. On an average, Air India's loss during 2010-11 has been to the tune of Rs.5,800 crore and the accumulated losses run into much more.

Airline officials point out that the carrier has no control over 85 per cent of the cost incurred on operations. The major component is the cost of aviation turbine fuel that alone accounts for nearly 45 per cent. Other essential expenses on airport and aeronautical charges, ground handling and maintenance make up the rest.

Air India has already received an equity infusion of Rs.2,000 crore in two instalments from the government. It is likely to get another tranche of Rs.1,200 crore next month. It has already received in-principle approval to this effect from the Planning Commission.

A note for the Union Cabinet is also being prepared for creating specialised business units by separating its engineering MRO (maintenance-repair-overhaul) wing and ground handling facilities. The separate business units, on the lines of Air India Express, will remain subsidiaries of Air India, but try to earn for themselves and be self-sufficient. “Air India will transfer nearly 20,000 employees to these two business units on deputation. All employees will get protection for their salaries in MRO and ground handling units,'' airline officials said.

They said Air India would then have about 20,000 employees on its rolls which will include pilots, cabin crew and managerial and other staff. Air India runs up a wage bill of Rs. 3,500 crore annually and, since November-December last year, has not been able to register any operating profit. “But we hope to show operating profit in September-October this year,'' officials said.

“All steps are being taken in accordance with the turnaround plan which has been approved by the government. If everything goes well, Air India may be in black by 2015,'' airline officials said.

But for this to happen, aviation experts say, Air India will need to shed flab, be a lean and mean carrier, go for financial restructuring, take informed business decisions, get professional managers and say “no'' to political interference. They cited the example of “Garuda,'' Indonesia's flag carrier, which was beset with mounting losses and an unreliable and ageing fleet, but has managed to turn around profitably.